Life is enmeshed in duality: good and evil, ups and downs, day and night, rain and shine, etc.
The same is applicable to the stock market.
Market seasons can be tricky for new investors, but understanding them can be the key to success.
The market seasons are analogous to the natural seasons for a farmer, which is one factor contributing to the stock market’s sustained upward growth over time.
The world of equity investment is complex and fascinating, but it’s important to remember that stocks can go up or down at any time.
The two major market seasons or sessions that every investor should know about are the bull market and the bear market cycles.
Being able to recognize market moods and capitalize on them appropriately is what separates intelligent investors from the rest.
These sessions can be secular, primary, or secondary, depending on their duration.
Every season has its own advantages, and the ability to recognize and capitalize on trends is crucial.
What is a Bull Market?
A bull market is a period of increasing investor confidence and optimism, with positioning in anticipation of future price gains.
This optimism causes stock prices to rise. And a market rally of up to 20% is usually a confirmation of the bull season.
These optimistic investors are known as ‘Bulls.’
Why Are Optimistic Investors Called Bulls?
Optimistic investors are called bulls because of the way the animal attacks its prey—throwing its horns up into the air aggressively.
Also, the terms ‘bullish and bull run’ are used metaphorically for an upward movement of the market.
What is a Bear Market?
A bear market is a period of sustained pessimism in the market, during which stock prices are in a downward movement due to investors selling their shares massively out of fear.
A market decline of up to 20% is usually a confirmation of the bear season.
This panic selling, which causes a sustained downward spiral of stock prices is often due to perceived imminent market woes.
These pessimistic investors are known as ‘Bears.’
Why Are Pessimistic Investors Called Bears?
Pessimistic investors are called bears because of the way the animal attacks its prey.
Bears swipe their paws downward when attacking their prey. (This is symbolic of the downward movement of the market).
Also, the terms ‘bearish and bear run’ are used metaphorically for a downward movement of the market.
Is It Better To Invest In a Bull or Bear Market?
Both bull and bear markets present their own unique opportunities and challenges.
It doesn’t matter the season, bull or bear market, if you understand these market moods you can use them to your advantage appropriately.
Investors who master the market seasons profit from both bull and bear markets.
Let’s see Strategies to Invest in the Bullish and Bearish Seasons from the perspectives of three sets of investors:
A. The long-standing/retiree investor—old-timer investors
B. The Freshmen Investor—those who just started on their investment journey
C. The Beginner—those about to make their first investments
Strategies for Investing in the Bull Market: How to Ride the Wave
A. Bull Market Strategies for Old-Timer Investors
For existing longtime investors and retirees, the following strategies can help them take advantage of the bull market: profits taking and portfolio rebalancing.
(i.) Take Profits
This is a good time for investors to consider taking profits from their investments.
By selling some of their holdings, they can lock in gains and reduce their exposure to potential market volatility.
(ii.) Rebalance Your Portfolio
Rebalancing your portfolio involves selling some of the assets that have performed well and using the proceeds to buy assets that are out of market favour at the moment.
This will help keep the asset allocation strategy of your portfolio in check so that one asset category does not overgrow its allocated percentage of the portfolio.
This can help ensure that your portfolio remains diversified and aligned with your investment objectives.
B. Bull Market Strategies for Freshmen Investors
(i.) Do Nothing
For freshmen, the best approach during a bull market is to do nothing.
The temptation to invest can be strong, but it’s important to resist the urge and wait for a better entry point.
(ii.) Let Your Portfolio Ride
(iii.) Wait for the Market to Retrace
It’s better to keep saving and wait for the market to retrace before investing.
Learning about value-momentum analysis at this time is a game changer.
(iv.) Financail Planning
This is also a good time to draw up a financial plan and set investment goals.
C. Bull Market Strategies for Beginner Investors
(i.) Ditch the Herd Mentality
It is important to remember that a bull market is not the time to rush into the market out of fear of missing out (FOMO).
(ii.) Invest in Yourself
Focus on building your investment knowledge by learning about value-momentum analysis.
This approach will help you determine when to enter the market and make informed investment decisions.
Strategies for Investing in the Bear Market: How to Survive the Wilderness
A. Bear Market Strategies for Old-Timer Investors
For existing longtime investors and retirees, the following strategies can help you take advantage of the bear market:
(i) Do Nothing
If you have a long-term investment strategy, it may be best to do nothing during a bear market.
This is because markets are cyclical, and history has shown that they eventually recover.
(ii) Add to Your Positions in Fundamentally Strong Companies
If you have a source of active income and idle cash, this is a good time to look for opportunities to buy stocks of fundamentally strong companies at a discounted price.
By doing so, you can increase your exposure to potential gains when the market eventually recovers.
B. Bear Market Strategies For Freshers
(i.) Keep On Investing (KOIN)
The best approach during a bear market is to keep on investing (koinin’ the market).
It’s also important to invest in the top fundamentally sound businesses and invest consistently, utilizing the ‘cost averaging’ approach.
This means investing a fixed amount of money at regular intervals, regardless of current market conditions.
This approach can help reduce the impact of market volatility on your investments.
C. Bear Market Strategies For Beginner Investors
(i.) Start Now
For beginners, the key is to start now and not delay any further.
Bear markets can present excellent investment opportunities, especially for those with a long-term investment horizon.
(ii.) Invest Consistently
It’s important to invest in the top fundamentally sound businesses. Invest consistently utilizing the cost-averaging approach, and think long-term.
Bulls vs. Bears vs. Wolfs
Apart from bulls and bears, there is an underrated category of investors. These investors are known as “lean investors.”
If an optimist is a bull and a pessimist is a bear, a suitable animal to liken a lean investor to would be the wolf.
Just like bulls and bears derive their names from the way the animals hunt, the comparison of the lean investor to a wolf aligns with the attitude of the wolf in hunting.
Wolves are known for their agility, adaptability, and strategic approach to hunting.
Similarly, lean investors are nimble and agile in their investment decisions, constantly adapting to changing market conditions and seeking out strategic opportunities.
Wolves also embody a sense of discipline and patience.
Lean investors exercise discipline in their investment choices, carefully evaluating risks and rewards before making decisions.
They patiently wait for the right moment to strike, just as wolves patiently stalk their prey before launching into action.
Additionally, wolves are known for their ability to work together as a pack, collaborating and supporting one another in pursuit of their goals.
There is no one “better” market to invest in, as both bull and bear markets have their own opportunities and challenges.
The key is to stay focused on your investment goals and strategy, and to always be mindful of the risks and rewards of the markets.
Understanding the strategies for investing in both bull and bear markets is essential for investors who want to achieve their investment objectives.
Whether you are an existing investor or a beginner, following these strategies can help you navigate the market seasons and make informed investment decisions.
About the Author
Ini-Amah Lambert is a leading authority on personal finance and equity investment intelligence.
He is a financial modelling and business valuation analyst with a degree in engineering.
A sagacious speaker, trainer, erudite teacher, coach, consultant, and author, Lambert works with busy professionals and small business owners to help them capitalize on the immense opportunities in equity investment and the capital markets to create a residual passive income stream and multi-generational family wealth.
His mantra is ”Buy income today, own a piece of the global economy, and earn-joy your leisure tomorrow.”
He also trains teens and young adults to help them start building wealth early. He is the author of Cracking the Stock Market Code, The Art of Investing, and Sell the Sizzle.